It makes you poorer. This is because liabilities take money out of your pocket each month, not put money in them. Good debt, on the other hand, is debt that puts money in your pocket each month. It makes you richer. It is used to purchase things like investment real estate, grow your business, or take advantage of other investment opportunities. In short, it is used to purchase cash-flowing assets.
The cash flow from those assets pay for the cost of the debt. Unfortunately, most people in America are saddled with bad debt and have no idea how to put good debt to work for them. And the reality is that before you can put good debt to your advantage, you really need to take care of your bad personal debt. Those were hard times for Kim and me. For a short time, we even lived in our car. Having as much debt as we did, coupled with the emotions of losing my business, it would have been easy to roll over, get a good job, and give up on my dream of building a successful business.
Using all we had learned about money and how it worked, we looked for great opportunities to build our asset column—and eliminate our personal consumer debt—bad debt. By implementing this plan, we were completely debt free within a few years and on our way to financial freedom. The following are the six simple steps you can use to eliminate your personal debt.
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If you implement them, they will work. If you have credit cards with outstanding balances , discipline yourself to use only one or two credit cards. Want to take things a step further? Consider cutting the cord to cable TV altogether. There was a time when people thought their collections would bring them riches. Beanie Babies were a big fad at one time, as were Longaberger baskets.
You can add to those rewards and discounts by using rewards credit cards to earn points on purchases at a wide range of stores that can be redeemed for cash back or other benefits. If you want to save money while also giving generously, creating your own homemade gifts is one way to accomplish both goals. You can make food mixes, candles, fresh-baked bread or cookies, soap, and all kinds of other things at home quite easily and inexpensively.
Even better — include a personal handwritten note with the gift. Avoiding instant gratification is one of the most important rules of personal finance , and waiting 30 days to decide on a purchase is an excellent way to implement that rule. One of the easiest ways to save money is to only shop when you have a list.
Creating a list before you go to the grocery store is especially important. Not only can it help you buy items that fit with your meal plan, but it can also help you avoid buying food you might waste. Always create a list and, more importantly, stick to it. You can also take advantage of a cash back rewards card that gives bonus cash at grocery stores — just be sure to pay off the balance each month. And no matter what, it is always cheaper to stay in with friends and come up with your own entertainment.
Instead of hitting the town, host a fun pitch-in dinner with your friends. Play cards, sit around a fire pit, or watch movies with your guests. Most basic sewing jobs can be completed by anyone, and a little bit of practice goes a long way. Learning basic sewing skills is a great way to save some money — and extend the life of your clothing. Photo: Chris. Most children, especially young ones, can be entertained very cheaply. Buy them an end roll of newspaper from your local paper and let their creativity run wild. Play ball in the backyard.
Head to the park. Plant a garden. Teach them to ride a bike without training wheels once and for all. Not only do you have the right to negotiate your current interest rate with your credit card issuer, but you have the right to transfer your balance to an entirely different card as well. In fact, that is perhaps your biggest bargaining chip. Start by calling your card issuer at the number on the back of your card and explaining your request. Go through your closets and find anything and everything you no longer use.
You can have a yard sale with it , sell it on eBay or Craigslist, take it to a consignment shop, or even donate it for the tax deduction mark down what you give away so you can get a receipt. Now, I focus on games that can be played over and over and over again, and I focus on mastering the games that I buy. Good targets include puzzle games and long, involved quest games — they maximize the value of your gaming dollar. Drink a big glass of water before each meal in order to stay fuller longer and ultimately eat less.
Even better, drinking more water — whether in a refillable bottle or at restaurants — means spending less money on beverages like soda, juice, and tea. Instead of eating fast food or just nuking some prepackaged dinner when you get home, try making some simple and healthy replacements that you can take with you.
If you want to add years to your life and save a boatload of money, the easiest thing to do is to stop smoking altogether. You can quit cold turkey, try some of the many anti-smoking products that are out there, or switch to an electronic cigarette to buy some time. Whichever path you choose, you will be much better off. We all know that casseroles are nice, easy dishes to prepare.
The next time you make a casserole, make four batches of it and put the other three in the freezer. Then, when you need a quick meal for the family, you can grab one of those ready-made casseroles and just heat it up. Keeping the lights on in your home may not be expensive on a per-watt basis, but it sure does cost money over time.
To save as much as you can, turn off lights any time you leave your house — or even when you leave the room. Turning off lights when you have plenty of natural sunlight can also help keep your electric bill down over time. Yard sales are a great place to score awesome deals on items you need anyway — think housewares, shoes, clothing, or even sports equipment. At your next garage sale, limit yourself to items that were already on your list of things to buy.
Energy-efficient light bulbs might cost a bit more initially, but they have a much longer life than normal incandescent bulbs and use far less electricity. CFLs , which use a quarter of the energy of incandescent bulbs and last for years, are the next cheapest option after traditional bulbs. But they also have some drawbacks: They take a while to warm up to full brightness, and they also contain a small amount of mercury.
When you need to buy an appliance, do research: Start with back issues of Consumer Reports at the library. Additionally, consider utilizing a professional to install appliances to ensure they are installed properly and will last in the long-run. If yours is beyond help, also consider changing it out for a new one. If you have a habit of getting into trouble with credit cards, hide your credit cards and keep them in a safe place in your home, not in your wallet.
Look at the biggest sales, then plan recipes based on those ingredients and what you have on hand. Just keep track of the 20 or so things you buy most often, then shop for these items at a variety of stores. Before I tried it myself, I thought making homemade bread would just be a complicated waste of time. But after I tried it, I found that it was pretty easy and it was actually much cheaper, healthier, and tastier than buying a loaf from the store.
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We rarely ever buy bread at the store these days, mainly because the bread I make is not only cheaper, but much better too. Figuring out what you can make it home is a great way to save some money — and learn new skills along the way. Exercise is always a good option, as is meditation and even a good old-fashioned nap. This seems like an odd way to save money, but think about it. If you spend time with the people you love the most and come to some consensus about your dreams, it becomes easy for you all to plan for it.
Look behind the appliances, and use your vacuum to gently clear away dust. Check all of the vents, especially on refrigerators, dryers, and heating and cooling units. Are you paying dues at a club that you never use?
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Like, for instance, a gym membership or a country club membership? Remember, you can always renew the membership at a later date if it turns out that you actually do miss it.
You can often find the exact item you want with a bit of clever shopping at used equipment stores, used game stores, consignment shops, and so on. Just make these shops a part of your normal routine — go there first when looking for potential items and you will save money. Clothes, for example, often cost pennies on the dollar when bought used — even if they were only worn once.
By buying used most of the time, you can save a ton of cash. It can be beneficial to shop around for a new car insurance or home insurance policy every few years to make sure you are getting that best deal. The best way to break this habit is to simply delete your card from the account. For new parents, give an evening of babysitting as a gift. If you know pet owners, offer to take care of their pets when they travel.
Offer up some lawn care as a gift to a new homeowner. Most people use this technique for Christmas , but it works for every holiday. Step 2: Make minimum payments on all debts except the smallest—throwing as much money as you can at that one. Once that debt is gone, take its payment and apply it to the next smallest debt while continuing to make minimum payments on the rest. Step 3: Repeat this method as you plow your way through debt. The more you pay off, the more your freed-up money grows—like a snowball rolling downhill. Sure, it might appear that paying off the debt with the highest interest rate first makes the most sense—mathematically.
Yes and no. Getting quick wins in the beginning will light a fire under you to pay off your remaining debts!
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Listen—knock out that smallest debt first, and you will find the motivation to go the distance. Your debt snowball should include all non-mortgage debt—debt being defined as anything you owe to anyone else. Take student loans, for example. Many consider student loans worthwhile debt, but the truth is, they hurt your finances in the long run. Think about it. Bottom line: No debt is good debt. An emergency fund covers those life events you can't plan for. Think busted hot water heater, dental emergency or flat tire.